How does supply chain and logistics relate to me?
What does a supply chain look like?
When it comes to a supply chain, there are no hard and fast rules. It varies depending on the size and complexity of the business. At its simplest, it's about getting raw materials from a supplier to a manufacturer, and then getting products out to customers.
Yet, even for small businesses, this seemingly simple task has complex underpinnings. Why? Because it relies on a carefully choreographed dance between internal business functions and any external services in the supply-chain.
Let's take a look under the hood:
- Internal business functions – this involves things like product planning, production planning, materials sourcing, and demand management. It may also include transportation and warehousing, although many SMBs choose to outsource these tasks to third party logistics (3PL) companies.
- External services – this includes materials/parts suppliers, manufacturers if you fabricate off-site, distributors, and transport companies.
So, at any point in time, your production team may need to talk to a parts supplier about a new widget; and the sales team may need to talk to the transport company about a new freight route; and the end customer may need the reassurance that their precious purchase is on its way.
What role does supply chain management and logistics play?
Supply chain management and logistics, then, is the process of ensuring all the different components speak the same language, and are working towards the same goal. It's not just about moving goods – it's the management of physical materials, services, information, money and time across and between organisations.
The objective is to make each link in the chain more efficient and less costly.
For SMBs with online stores, two key components are warehousing and shipping – which are both integral to the pick-and-pack fulfilment service. That is, getting the products off the warehouse shelf and on the road to the customer. Inventory management then becomes important, to track whether stocks are depleting and plan future production.
It can get messy, and it's worth the upfront investment in strategies and services to make your supply chain as neat and efficient as possible..
What does it cost?
This depends on how complex your supply chain is. Upfront, you may face significant IT costs, such as automation and tracking technologies. Ongoing, there are resourcing and capital costs involved.
In evaluating the cost to your business, you can pin a 'per item' or 'per shipment' cost to the movement of goods. This gives you a starting point to measure against potential savings.
For SMBs, outsourced (or 3PL) logistics often makes more sense. 3PL delivers tangible cost savings, and also removes the burden of managing supply chain in-house. In fact, the integrated logistics sector is forecast to grow at a compound annual rate of 3.1% through to 2020, faster than GDP – a sure sign that more companies are realising the cost benefits of outsourcing1.
How can you improve your supply chain?
There are four key elements of a well-oiled supply chain:
- Speed – the faster stock moves, the better
- Economy of scale – holding the right amount of stock at various points in the supply chain is critical
- Cost efficiencies – finding low cost ways to move and store the parts
- IT – automated eMessaging and ERP software is a big improvement on phone and fax
You can also take a more holistic view of supply chain efficiency, and make improvements at strategic, tactical and operational levels:
- Strategic – this looks at the issues like the size and location of manufacturing sites;partnerships with suppliers; and investments in IT. Supply chain segmentation is an emerging strategic trend, particularly as the business environment becomes increasingly complex2.
- Tactical – this weighs up the cost benefits of working with preferred suppliers; working with logistics companies to reduce transport costs; and reducing the cost of storing inventory.
- Operational – these are the day-to-day changes you can make around how goods move through the supply chain, for example responding to seasonal demand or refining production schedules.
- Supply chain and logistics providers have the expertise and resources to help you answer many of the issues above.